Why insured loss numbers for the “HIM” hurricanes are delayed

Hurricane Harvey hit Texas in August 2017. Just weeks later, Irma made landfall in Florida, followed by Maria in Puerto Rico. The so-called “HIM” storms struck the U.S. 16 months ago, but final insured loss numbers have yet to be finalized. Why?

There are at least two reasons: the storms happened in rapid succession, wreaking havoc on the claims settlement process; and the storms caused significant business interruption losses, which can take time to settle.

The storms happened in rapid succession. Three major hurricanes hit the U.S. within a month of each other. This put a serious strain on insurers’ ability to adjust losses – basically, investigating and settling claims. There weren’t enough local adjusters, so others had to be brought in from other states. But despite the reinforcements, there weren’t always enough adjusters to go around as storm followed storm. Claim reports were therefore delayed and the expenses for adjusting losses increased. (Similar issues cropped up during the 2005 season, when hurricanes Katrina and Rita hit Louisiana only three weeks apart.)

This problem was especially acute in Puerto Rico after Hurricane Maria. As the Property Claims Services (PCS) unit of ISO noted, loss adjusters and contractors had to be flown in from the mainland – but not nearly enough of them were available, since many were still working on damage from Harvey and Irma. Fewer adjusters and contractors meant that, in many cases, only emergency repairs could be completed. As these temporary repairs deteriorated, buildings were further damaged, and more repair payments had to be made. Additionally, PCS noted that mainland adjusters may have been unfamiliar with the insurance policies typical in Puerto Rico, leading to insurers having to reopen some claims.

Claims were also reopened in Florida after Hurricane Irma, but for different reasons. In April 2018 Florida’s Citizens Property Insurance Corp. announced that it had reopened about 37 percent of its Irma-related claims since the storm. Citizens stated that many claims required additional payments or needed more information.

A high volume of reopened claims could be due to insurers paying out losses too quickly. Some have argued that insurers in Florida had acted so quickly in an attempt to avoid dealing with assignment of benefits (AOB) claims. (Check out the I.I.I.’s recent report on Florida’s AOB crisis for more information.) Several insurers have noted that insured losses for Irma continue to rise because of AOB claims, reopened claims, and higher adjustment expenses.

Business interruption issues continue. “Business interruption” usually includes losses that result from a business’s lost revenue and increased expenses caused by property damage following a hurricane. Sometimes these policies will also cover losses from utility outages. Depending on how severe the damage is, business interruption claims can be quite large – and they can take a long time to settle.

Consider Puerto Rico: Unfortunately, Hurricane Maria slammed the island’s fragile infrastructure and energy grid. The pharmaceutical industry, which has a large manufacturing footprint on the island, was particularly affected. The commissioner of the U.S. Food and Drug Administration (FDA) noted at the time that damaged factories weren’t nearly as big a problem as an unstable electric grid. There were shortages of some drugs and medical devices for months after Maria struck.

Because of these issues, we can’t expect the final insured losses for the HIM storms until maybe mid-2019, almost two years after the fact.